State Monopoly on the Retail Sale of Tobacco

The Orbán government introduced a state monopoly on the retail sale of tobacco in Hungary beginning on July 15, 2013. The government has granted concessions via public tender to operate so-called National Tobacco Shops throughout the country at which tobacco products can be sold under the state monopoly at a variable annual fee.  The opposition has charged that the Orbán government awarded many of these concessions based on political loyalty and connections rather than business considerations. 

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Introduction of the State Monopoly 

Official National Tobacco Shop sign.

Official National Tobacco Shop sign.

Fidesz National Assembly caucus Chairman János Lázár and other party representatives submitted the legislation establishing the state monopoly on the retail sale of tobacco, officially called the Law on Curbing Under-Age Smoking and on the Trade of Tobacco Products, on December 16, 2011 (source in Hungarian). 

Lázár, who currently serves as the minister in charge of the Prime Ministry, said that the dual purpose of the law was to restrict access of minors to cigarettes and to provide small family-run businesses with economic opportunity (source in Hungarian).

The legislation stipulated that state concessions for the retail sale of tobacco would be valid for a period of 20 years and that individual bidders would be limited to a maximum of five concessions. The law specified variable annual concession fees according to the size of the community in which the given National Tobacco Shop was located—from 100,000 forints in villages of under 2,000 inhabitants to 240,000 forints in Budapest and other large cities (source in Hungarian).

Subsequent amendments to the law stipulated that National Tobacco Shops could also sell alcoholic beverages, energy drinks, coffee, soft drinks, mineral water and newspapers and, furthermore, guaranteed a ten-percent margin between the amount they paid for wholesale tobacco products and the price for which they sold the products (source A and B in Hungarian).

The legislation forbid the sale of any of the products available at the National Tobacco Shops to people under 18 years old and prohibited minors from entering the shops. 

The European Commission (the government cabinet of the European Union) voiced no objection to the proposed legislation establishing a state monopoly on the retail sale of tobacco (source in Hungarian).

Issuing Concessions to Sell Tobacco 

Official National Tobacco Shop sign.

Official National Tobacco Shop sign.

On February 18, 2013, National Assembly representatives from the FideszChristian Democratic People’s Party governing party-alliance approved the Law on Curbing Under-Age Smoking and on the Trade of Tobacco Products. Opposition representatives voted against the legislation (source in Hungarian).

On April 23, 2013, National Tobacco Trade Nonprofit (Nemzeti Dohánykereskedelmi Nonprofit), the government-run company established to oversee the state monopoly on the retail sale of tobacco, announced the first-round winners of concessions to operate National Tobacco Shops (source in Hungarian).

National Tobacco Trade Nonprofit awarded 5,415 concessions to 3,515 bidders in the first round of the tender, meaning that each winning bidder won just over 1.5 concessions (source in Hungarian).

A total of 29 bidders won the maximum five concessions, while 148 bidders won four concessions, 210 bidders won three concessions and 484 bidders won two concessions (source in Hungarian).

Therefore, National Tobacco Trade Nonprofit granted just over 40 percent of the concessions to multiple winners.

Accusations of Pro-Fidesz Bias 

National Tobacco Shop at CBA grocery store in Budapest.

National Tobacco Shop at CBA store in Budapest.

The opposition charged that the government-run National Tobacco Trade Nonprofit had selected many of the winning bids for the twenty-year concessions to sell tobacco based on personal connections to Fidesz political officials and loyalty toward the party  rather than economic and business factors (source in Hungarian).

Opposition news websites reported that National Tobacco Trade Nonprofit had awarded more than 500 of the concessions to people connected directly to the Fidesz-friendly Hungarian tobacco company Continental Tobacco Group through its sales and marketing unit Tabán Trafik located in the city of Hódmezővásárhely (southern Hungary, pop. 46,000). A total of 90 of these concessions were granted to people close to Tabán Trafik whose companies were registered to a single address in the nearby town of Baja. The reports noted that Continental Tobacco Group CEO János Sánta had helped the head of the Prime Ministry and former mayor of Hódmezővásárhely János Lázár draft the legislation establishing the state monopoly on the retail sale of tobacco (sources A, B, C and D in Hungarian). 

The Continental Tobacco Group condemned “the one-sided hysteria mongering of the press,” though did not deny any of the accusations (source in Hungarian). 

The opposition also alleged that people connected to the explicitly pro-Fidesz Hungarian grocery-store chain CBA had won an inordinate number of concessions to operate National Tobacco Shops in the first round of bidding (source in Hungarian).  

A single-theme website launched to investigate these allegations produced a map displaying the location of suspected cases throughout Hungary of pro-Fidesz political bias in the awarding of the tobacco concessions (map and source in Hungarian).  

On April 30, 2013, one week after National Tobacco Trade Nonprofit announced the winners of the concessions, Fidesz municipal council member from the city of Szekszárd (southern Hungary, pop. 34,000) Ákos Hadházy claimed in an interview with the opposition website hvg.hu that Fidesz National Assembly representative and Szekszárd Mayor István Horváth had gone over a list of local tobacco-concession bidders with local-council members from the party during a private meeting in order to determine which of the bidders were sufficiently loyal to Fidesz to be selected as winners (source in Hungarian).

Mayor Horváth denied the accusation, asserting that “No illegality took place either in Szekszárd or elsewhere in connection to the tobacco tenders and could not have even taken place since it was National Tobacco Trade that issued and decided on them” (source in Hungarian).

"Who's Got the Tobacco?": Prime Minister's Office chief János Lázár on the cover of the weekly Heti Válasz.

“Who’s Got the Tobacco?”: Prime Ministry chief János Lázár on the cover of the weekly Heti Válasz.

In an interview with the pro-government weekly Heti Válasz published on May 8, 2013, Prime Ministry chief János Lázár asserted that the allegations of pro-Fidesz bias in the selection of winning bids in the tobacco-concession tender had been the result of a “political smear campaign” that U.S. tobacco company Philip Morris had organized against the state monopoly on the retail sale of tobacco. Lázár added that “not even the opposition press could demonstrate Fidesz connections to 90 percent of the traffic tender winners”  (source in Hungarian).

However, the very next day, on May 9, 2013, the opposition website hvg.hu published an audio recording in which the mayor of Szekszárd can be heard telling the Fidesz members of the city’s municipal council while examining a list of local tobacco-concession bidders that “one must be a committed right-winger” and “good, good, don’t let the socialists win!” (source in Hungarian).

Mayor Horváth did not deny making the statements on the recording. 

On May 17, 2013, Prime Minister Viktor Orbán firmly rejected the notion that politics had played a role in selecting the winning bids in the tobacco-concession tender, asserting that “There are hundreds of winning left-wing bidders. If political considerations had been taken into account, then not one left-winger would have won.” Prime Minister Orbán noted, however, that “We will never turn our backs on our own supporters,” then posed the rhetorical question: “Why would it be a problem for that matter if entrepreneurs who subscribe to our value system win if they submit suitable bids in the tenders?” (source in Hungarian). 

On June 30, 2013, one day before the opening of the National Tobacco Shops and just over two weeks before the state tobacco monopoly went into effect, National Tobacco Trade Nonprofit sent the losing concession bids back to the bidders. The opposition charged that National Tobacco Trade Nonprofit did so in order to make it impossible to gain access to all bids for a particular concession in order to determine the possible factors the underpinned the government-run organization’s selection of the winning bid (source in Hungarian).

The same month, the Budapest Public Prosecutor’s Office (Fővárosi Ügyészség) announced that it did not have the authority to initiate investigative procedures connected to the process of granting tobacco concessions because the “management of national property” does not fall within the prosecutor’s authority (source in Hungarian).

The Budapest Municipal Court Orders the Publication of Bid Assessment Information

On May 9, 2014, the Budapest Municipal Court (Fővárosi Törvényszék) ordered the National Development Ministry to publish all pertinent information regarding National Tobacco Trade Nonprofit’s selection of the winning bids in the tobacco-concession tender, including the names of the members of the selection committee, pursuant to a lawsuit that the opposition Democratic Coalition had launched in 2013 (source A and B in Hungarian).

The National Development Ministry revealed the names of the 12 selection-committee members from the Rural Development Ministry, the Ministry of Justice and Public Administration, the National Economy Ministry and the National Asset Management Company by the stipulated deadline of June 25, though requested and received more time to publish material related to their assessment of the bids (source in Hungarian).

The Constitutional Court Rejects Claims of Fundamental Rights Violation

On July 8, 2014, Hungary’s Constitutional Court rejected a claim initiated by 16 former retail tobacco merchants who had failed to win concessions that the state monopoly on the retail sale of tobacco violated the right to property and the freedom of enterprise. The court ruled that the state monopoly did not violate these rights because it did not entail the loss of shops themselves, but only of the right to sell tobacco in them, which cannot be considered a fundamental right (source A and B in Hungarian).

Hungarian Socialist Party Pledge to Abolish State Tobacco Monopoly 

The Hungarian Socialist Party announced shortly after the announcement of the winning bids in the initial round of the tender for concessions that it would abolish the state monopoly on the retail sale of tobacco if it returned to power following Hungary’s 2014 National Assembly election (source in Hungarian).

However, the opposition website hvg.hu estimated that revoking the state monopoly on the retail sale of tobacco would cost the government an estimated 15 billion forints as a result of the clause in the concession contract stipulating that those operating National Tobacco Shops would receive compensation of between 1.9 million forints and 4.6 million forints if the contract is terminated before its expiration in 2033 (source in Hungarian).

Robbery of National Tobacco Shops

Robbery of National Tobacco Shops is a frequent, news-making occurrence in Hungary and has become the source of sarcastic humor among the opposition (see 444.huTrafik Robbery Megamix”).

Last updated: June 11, 2016. 

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